TRANSACT TECHNOLOGIES INC Management report and analysis of the financial situation and operating results. This analysis should be read in conjunction with the consolidated financial statements and accompanying notes. (Form 10-K)

0

Overview

During the year ended December 31, 2021, we continued to experience recovery
from the negative impacts COVID-19 had on our business during 2020.  While we
have experienced recovery in most of our markets, there are still uncertainties
on how COVID-19 will continue to impact our business, operations, supply chain,
customer and vendors.  During 2021, we continued to focus our efforts on the
sales execution and growing revenue of BOHA! software-as-a-service
("SaaS")-based software and hardware ecosystem launched in 2019.  Despite the
negative impact from COVID-19, food service technology sales increased 63% in
2021 compared to 2020 due primarily to sales of our BOHA! software, labels and
other recurring revenue to both new customers and our existing installed base of
BOHA! terminals.

During 2021, all markets other than lottery and TSG increased compared to 2020
as we have started to see recovery from the negative impacts from the COVID-19
pandemic.  POS automation sales increased primarily due to higher sales of our
Ithaca 9000 printer to McDonald's in 2021 compared to 2020.  Casino and gaming
sales were higher in 2021 due to casinos continuing to reopen and increase
capacity during 2021 after being closed in 2020 in response to the COVID-19
pandemic.  Printrex sales increased in 2021 after being negatively impacted by
lower worldwide oil prices largely attributable to the COVID-19 pandemic during
2020.  We had no lottery market sales during 2021 as we exited the lottery
market in 2019 and completed our final sale of lottery printers in 2020.  TSG
sales decreased in 2021 compared to 2020 primarily due to lower service sales
due to exiting the banking market in 2018, lower replacement part sales and
lower sales of our legacy consumable products.

During the year ended December 31, 2021, our total net sales increased 29% to
approximately $39.4 million compared to the year ended December 31, 2020.  See
the table below for a breakdown of our sales by market:

                               Year Ended                   Year Ended
(In thousands, except
percentages)               December 31, 2021            December 31, 2020          $ Change       % Change
Food service
technology ("FST")      $   12,625          32.1 %   $    7,734          25.3 %   $    4,891           63.2 %
POS automation               4,825          12.2 %        3,770          12.3 %        1,055           28.0 %
Casino and gaming           15,302          38.9 %       10,979          35.9 %        4,323           39.4 %
Lottery                          -           0.0 %          817           2.7 %         (817 )       (100.0 %)
Printrex                       631           1.6 %          300           1.0 %          331          110.3 %
TSG                          6,003          15.2 %        6,995          

22.8% (992) (14.2%)

                        $   39,386         100.0 %   $   30,595         100.0 %   $    8,791           28.7 %



Sales of our food service technology products increased 63% in the year ended
December 31, 2021 compared to the year ended December 31, 2020.  In the food
service technology market, we focus on providing hardware products, which
include terminals/workstations, temperature probes, temperature sensors and
gateways in addition to cloud-based software applications, labels and other
recurring revenue items.  Food service technology sales increased in 2021
primarily due to a 95% increase in BOHA! recurring revenue, which include
subscriptions for the software applications, as well as sales of labels,
extended warranty and service contracts, and technical support services.  Our
FST hardware sales also increased by 33% as we increased our total installed
base by 4,130 terminals and workstations during 2021 resulting in a total
installed base of 9,818 terminals at the end of 2021.

                                       20
--------------------------------------------------------------------------------

Sales of our POS automation products increased 28% in the year ended December
31, 2021 compared to the year ended December 31, 2020.  In the POS automation
market, we focus primarily on supplying printers that print receipts or
linerless labels to McDonald's, and to a lesser extent other customers in the
restaurant and quick serve markets.  During the year ended December 31, 2021,
sales of our Ithaca 9000 printer to McDonald's recovered from the unusually low
level we experienced in 2020 due to the significant negative impact of the
COVID-19 pandemic on the POS automation market.

Sales of our casino and gaming products increased 39% in 2021 compared to 2020.
In our casino and gaming market, our focus lies primarily in supplying printers
worldwide for use in slot machines at casinos and racetracks, as well as in
other electronic gaming devices that print tickets or receipts. Additionally, we
supplement these printer sales with revenue from EPICENTRAL our promotional
printing system that enables casino operators to create promotional coupons and
marketing messages and print them in real time at the slot machine.  The
increase of casino and gaming printers was due to the recovery of the domestic
and international casino and gaming market during 2021, as casinos continued to
reopen compared to 2020 when the market was severely impacted by the COVID-19
pandemic and the related closures of casinos.

On December 31, 2019, we ended our non-exclusive agreement with IGT and exited
the lottery market as we shifted our focus to our higher-value,
technology-enabled market for food service technology and casino and gaming
products.  During 2020, IGT made a final purchase of lottery printers and we
expect no future sales of our lottery printer.

Sales of our Printrex branded printers include wide format, rack-mounted and
vehicle-mounted thermal printers used by customers to log and plot oil field and
down hole well drilling data in the oil and gas exploration industry.  During
the year ended December 31, 2021, we experienced a 110% increase in Printrex oil
and gas printer sales, as the oil and gas market recovered from the negative
impact during 2020 of lower worldwide oil prices as a result of the COVID-19
pandemic.  Additionally, we fulfilled last buy orders to legacy customers during
the fourth quarter of 2021, as we decided to exit this market as of December 31,
2021.  We expect no future Printrex sales as we have shifted our focus away from
this market and towards our higher value, technology-enabled food service
technology terminals and casino and gaming products.

TSG, which sells service, replacement parts and consumable products, including
receipt paper, ribbons and other printing supplies, continues to offer a
recurring revenue stream from mostly our legacy products.  TSG sales decreased
14% in 2021 compared to 2020, primarily due to declining service revenue from a
legacy banking customer whose service contract is expected to end during 2022,
as well as lower replacement part and consumable product sales.  We expect TSG
sales to continue to decline in 2022 due to the ending of the service contract
with a legacy banking customer and lower expected sales of our lottery printer
spare parts to IGT for our legacy lottery printer.

Operationally, our gross margin was 38.7% in 2021, a decrease of 360 basis
points from 2020, due largely to lower margin on our BOHA! hardware sales during
2021 compared to 2020, as we have reduced prices to accelerate the growth of our
BOHA! installed base, as well as higher material and shipping costs resulting
from worldwide supply disruptions caused by the COVID-19 pandemic.

During 2021, our operating margin improved to negative 24.1% compared to
negative 26.7% in 2020 as the 29% increase in sales more than offset the 360
basis point decrease in gross margin and increased operating expenses.
Operating expenses increased by 17% as we gradually returned to more normalized
pre-COVID-19 spending levels.  During 2022, we expect operating expenses to
continue to increase compared to 2021, due to the continued investment in our
food service technology products.

We reported a net loss of $4.1 million and net loss per diluted share of $0.45
for 2021, compared to a net loss of $5.6 million and net loss per diluted share
of $0.72 for 2020.  In terms of cash flow, for 2021 we used $2.5 million of cash
in operating activities.  During 2021, we also successfully completed an
underwritten public offering of our common stock which raised net proceeds of
$11.2 million.  We ended the year with cash and cash equivalents of $19.5
million and no debt outstanding on our Consolidated Balance Sheet at December
31, 2021.

Critical Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make use of estimates, judgments
and assumptions that affect both Balance Sheet items and Statement of Operations
categories.  Such estimates and judgments are based upon historical experience
and certain assumptions that are believed to be reasonable in the particular
circumstances; however, due to the inherent uncertainties in developing
estimates, actual results could differ from the original estimates, requiring
adjustments to these balances in future periods.

The following accounting policies are those that we believe to be most critical
in the preparation of our financial statements.  These items utilize assumptions
and estimates about the effect of future events that are inherently uncertain
and are therefore based on our judgment.  Refer to Note 2 - Summary of
significant accounting policies in the accompanying Consolidated Financial
Statements for a complete listing of our significant accounting policies.

Revenue Recognition - Application of GAAP related to the measurement and
recognition of revenue requires us to make judgments and estimates.
Specifically, the determination of whether revenues related to our revenue
contracts should be recognized over time or at a point in time.  Other
significant judgments include contracts that contain multiple performance
obligations (most commonly when contracts include a hardware product, software
and extended warranties) which require a contract's transaction price to be
allocated to each distinct performance obligation and recognized as revenue
when, or as, the performance obligation is satisfied.  Both of these
determinations impact the timing and amount of our reported revenues and net
income and loss.

                                       21
--------------------------------------------------------------------------------

Accounts Receivable - We have standardized credit granting and review policies
and procedures for all customer accounts, including: credit reviews of all new
customer accounts; ongoing credit evaluations of current customers; credit
limits and payment terms based on available credit information; and adjustments
to credit limits based upon payment history and the customer's current
creditworthiness.  We also provide an estimate of doubtful accounts based on
historical experience and specific customer collection issues.  Our allowance
for doubtful accounts as of December 31, 2021 was $219 thousand, or 2.8% of
outstanding accounts receivable, which we believe is appropriate considering the
overall quality of our accounts receivable.  Although credit losses have
historically been within expectations and the reserves established, there is no
assurance that our credit loss experience will continue to be consistent with
historical experience.

Inventories - Our inventories are stated at the lower of cost (principally
standard cost, which approximates actual cost on a first-in, first-out basis) or
net realizable value. We review net realizable value based on estimated selling
prices in the ordinary course of business less estimated costs of completion,
disposal and transportation, historical usage and estimates of future demand.
Assumptions are reviewed at least quarterly and adjustments are made, as
necessary, to reflect changing market conditions. Based on these reviews,
inventory write-downs are recorded, as necessary, to reflect estimated
obsolescence, excess quantities and net realizable value. Should circumstances
change and we determine that additional inventory is subject to obsolescence,
additional write-downs of inventory could result in a charge to income.

Goodwill and Intangible Assets - We acquire businesses in purchase transactions
that result in the recognition of goodwill and intangible assets. The
determination of the value of intangible assets requires management to make
estimates and assumptions. In accordance with ASC 350-20 "Goodwill," acquired
goodwill is not amortized but is subject to impairment testing at least annually
and when an event occurs or circumstances change that indicate it is more likely
than not an impairment exists.  We perform a fair value-based impairment test to
the carrying value of goodwill and indefinite-lived intangible assets on an
annual basis (as of December 31) and, if certain events or circumstances
indicate that an impairment loss may have been incurred, on an interim basis.
The Company utilizes the option to first assess qualitative factors to determine
whether it is necessary to perform the Step 1 quantitative goodwill impairment
test in accordance with the applicable accounting standards. Under the
qualitative assessment, management considers relevant events and circumstances
including, but not limited to, macroeconomic conditions, industry and market
considerations, Company performance, and events directly affecting the Company.
If the Company determines that the Step 1 quantitative impairment test is
required, management estimates the fair value of the reporting unit primarily
using the income approach, which reflects management's cash flow projections,
and also evaluates the fair value using the market approach. Factors considered
that may trigger an interim period impairment review of either acquired goodwill
or intangible assets are: significant underperformance relative to expected
historical or projected future operating results; significant changes in the
manner of use of acquired assets or the strategy for the overall business;
significant negative industry or economic trends; and significant decline in
market capitalization relative to net book value. Finite lived intangible assets
are amortized and are tested for impairment when appropriate.

As of December 31, 2021, upon the completion of our annual assessment for
impairment, we have determined that no goodwill or intangible asset impairment
has occurred and the fair value of goodwill was substantially higher than our
carrying value.

Income Taxes - In preparing our Consolidated Financial Statements, we are
required to estimate income taxes in each of the jurisdictions in which we
operate.  This involves estimating the actual current tax exposure together with
assessing temporary differences between the tax basis of certain assets and
liabilities and their reported amounts in the financial statements, as well as
net operating losses, tax credits and other carryforwards.  These differences
result in deferred tax assets and liabilities, which are reflected in our
Consolidated Balance Sheets.  We then assess the likelihood that the deferred
tax assets will be realized from future taxable income, and to the extent that
we believe that realization is not likely, we establish a valuation allowance.

Significant judgment is required in determining the provision for income taxes
and, in particular, any valuation allowance or tax reserves with respect to our
deferred tax assets and uncertain tax positions.  On a quarterly basis, we
evaluate the recoverability of our deferred tax assets based upon historical
results and forecasted taxable income over future years, and match this forecast
against the basis differences, deductions available in future years and the
limitations allowed for net operating loss and tax credit carryforwards to
ensure that there is adequate support for the realization of the deferred tax
assets. Although we have considered future taxable income and ongoing prudent
and feasible tax planning strategies in assessing the need for a valuation
allowance, in the event we were to determine that we would not be able to
realize all or part of our deferred tax assets in the future, an adjustment to
the valuation allowance or tax reserves would be charged as a reduction to
income in the period such determination was made.  Likewise, should we determine
that we would be able to realize future deferred tax assets in excess of its net
recorded amount, an adjustment to the valuation allowance would increase net
income in the period such determination was made.

We account for income taxes in accordance with ASC 740, "Income Taxes" ("ASC
740").  Among other things this provision prescribes a minimum recognition
threshold that an income tax position must meet before it is recorded in the
reporting entity's financial statements. It also requires that the effects of
such income tax positions be recognized only if, as of the balance sheet
reporting date, it is "more likely than not" (i.e., more than a 50% likelihood)
that the income tax position will be sustained based solely on its technical
merits.  When making this assessment, management must assume that the
responsible taxing authority will examine the income tax position and have full
knowledge of all relevant facts and other pertinent information.  The accounting
guidance also clarifies the method of accruing for interest and penalties when
there is a difference between the amount claimed, or expected to be claimed, on
a company's income tax returns and the benefits recognized in the financial
statements.

Warranty - We generally warrant our products for up to 24 months and record the
estimated cost of such product warranties at the time the sale is recorded.
Estimated warranty costs are based upon actual past experience of product
repairs and the related estimated cost of labor and material to make the
necessary repairs.  If actual future product repair rates or the actual costs of
material and labor differ from the estimates, adjustments to the accrued
warranty liability and related warranty expense would be made.

Share-Based Compensation - We calculate share-based compensation expense in
accordance with ASC 718, "Compensation - Stock Compensation" using the
Black-Scholes option-pricing model to calculate the fair value of share-based
awards.  The key assumptions for this valuation method include the expected term
of an option grant, stock price volatility, risk-free interest rate, and
dividend yield.  We account for forfeitures as they occur.

                                       22
--------------------------------------------------------------------------------

Results of operations: Year ended December 31, 2021 Compared to the year ended
December 31, 2020

Net Sales.  Net sales, which include printer, terminal and software sales as
well as sales of replacement parts, consumables and maintenance and repair
services, by market for the years ended December 31, 2021 and 2020 are detailed
in the below table.

                               Year Ended                   Year Ended
(In thousands, except
percentages)               December 31, 2021            December 31, 2020          $ Change       % Change
Food service
technology              $   12,625          32.1 %   $    7,734          25.3 %   $    4,891           63.2 %
POS automation               4,825          12.2 %        3,770          12.3 %        1,055           28.0 %
Casino and gaming           15,302          38.9 %       10,979          35.9 %        4,323           39.4 %
Lottery                          -           0.0 %          817           2.7 %         (817 )       (100.0 %)
Printrex                       631           1.6 %          300           1.0 %          331          110.3 %
TSG                          6,003          15.2 %        6,995          22.8 %         (992 )        (14.2 %)
                        $   39,386         100.0 %   $   30,595         100.0 %   $    8,791           28.7 %

International*          $    6,986          17.7 %   $    5,862          19.2 %   $    1,124           19.2 %


*International sales do not include product sales to domestic distributors

  or other customers who in turn ship those products to international
  destinations.



Net sales for 2021 increased $8.8 million, or 29%, from 2020.  Printer, terminal
and other hardware sales volume increased by 33% to approximately 82,000 units
for 2021, driven by volume increases in all our markets except the lottery
market, which we exited in 2020.  The primary volume increases were a 42%
increase in unit volume from the casino and gaming market and, to a lesser
extent, a 26% unit volume increase in our POS automation market and a 44%
increase in unit volume from the FST market.  The average selling price of our
printers, terminals and other hardware increased 1% during 2021 compared to
2020.  Additionally, sales of our software, labels and other recurring revenue
from our FST market increased $3.6 million, or 95%, during 2021 compared to
2020.

International sales for 2021 increased $1.1 millionor 19%, compared to 2020, mainly due to a 24% increase in international casino and gaming sales.


Food service technology:  Our primary offering in the food service technology
market is our BOHA! ecosystem, which combines our latest generation
terminal/workstation, cloud-based software applications and related hardware
into a unique solution to automate back-of-house operations in restaurants,
convenience stores and food service operations.  The software component of BOHA!
consists of a suite of software-as-a-service ("SaaS")-based applications for
both Android and iOS operating systems, including applications for temperature
monitoring of food and equipment, timers, food safety labeling, media libraries,
checklists and task lists, and equipment service management.  These applications
are combined into a single platform with the associated hardware, which includes
the BOHA! terminal/workstation, handheld devices, tablets, temperature probes
and temperature sensors. The BOHA! terminal combines the software and hardware
components in a device that includes an operating system, touchscreen and one or
two thermal print mechanisms that print easy-to-read food rotation labels,
grab-and-go labels for prepared foods, and "enjoy by" date labels.  The BOHA!
workstation uses an iPad instead of an integrated touchscreen.  Both the BOHA!
terminal and BOHA! workstation are equipped with the TransAct Enterprise
Management System to ensure that only approved applications and functions are
available on the device and allows over-the-air updates to the applications and
operating system.  BOHA! helps food service establishments and restaurants
(including fine dining, casual dining, fast casual and quick-serve restaurants,
convenience stores, hospitality establishments and contract food service
providers) effectively manage food safety and grab-and-go initiatives, as well
as automate and manage back-of-house operations.  Recurring revenue from BOHA!
is generated by software sales, including software subscriptions that are
typically charged to customers annually on a per-application basis, as well as
sales of labels, extended warranty and service contracts, and technical support
services.  Sales of our worldwide food service technology products for the years
ended December 31, 2021 and 2020 were as follows:

                               Year Ended                   Year Ended
(In thousands, except
percentages)               December 31, 2021            December 31, 2020          $ Change       % Change
Domestic                $   11,738          93.0 %   $    6,956          89.9 %   $    4,782           68.7 %
International                  887           7.0 %          778          10.1 %          109           14.0 %
                        $   12,625         100.0 %   $    7,734         100.0 %   $    4,891           63.2 %



                               Year Ended                   Year Ended
(In thousands, except
percentages)               December 31, 2021            December 31, 2020          $ Change       % Change
Hardware                $    5,226          41.4 %   $    3,938          50.9 %   $    1,288           32.7 %
Software, labels and
other recurring
revenue                      7,399          58.6 %        3,796          49.1 %        3,603           94.9 %
                        $   12,625         100.0 %   $    7,734         100.0 %   $    4,891           63.2 %


                                       23
--------------------------------------------------------------------------------

The increase in food service technology sales in 2021 compared to 2020 was
driven by an increase in sales of both hardware and BOHA! software, labels and
other recurring revenue.  Hardware sales increased 33% during 2021 compared to
2020 due largely to sales to an existing national convenience store customer and
a new national travel center customer, as well as higher sales of our AccuDate
9700 terminal to McDonald's.  These increases in hardware sales were partially
offset by a large sale completed in 2020 to a grab-and-go sushi chain that did
not reoccur in 2021.  Sales of BOHA! software recognized on a SaaS subscription
basis, labels and other recurring revenue increased by 95%, primarily due to
increased label sales and, to a lesser extent, increased software sales,
compared to the prior year period due principally to the growth of the installed
base of our BOHA! terminals and workstations.

POS automation:  Revenue from the POS automation market includes sales of
thermal printers used primarily by McDonald's, and to a lesser extent, other
quick serve restaurants either at the checkout counter or within self-service
kiosks to print receipts for consumers or print on linerless labels.  Sales of
our worldwide POS automation products for the years ended December 31, 2021 and
2020 were as follows:

                               Year Ended                   Year Ended
(In thousands, except
percentages)               December 31, 2021            December 31, 2020          $ Change       % Change
Domestic                $    4,817          99.8 %   $    3,763          99.8 %   $    1,054           28.0 %
International                    8           0.2 %            7           0.2 %            1           14.3 %
                        $    4,825         100.0 %   $    3,770         100.0 %   $    1,055           28.0 %



The increase in POS automation product revenue during 2021 compared to 2020 was
driven by a 28% increase in sales of our Ithaca® 9000 printer, primarily to
McDonald's, as POS automation sales continually improved during 2021 compared to
the significant negative impact from the COVID-19 pandemic on POS automation
sales during the final nine months of 2020.

Casino and Gaming:  Revenue from the casino and gaming market includes sales of
thermal ticket printers used in slot machines, video lottery terminals, and
other gaming machines that print tickets or receipts instead of issuing coins at
casinos and racetracks and other gaming venues worldwide.  Revenue from this
market also includes sales of thermal roll-fed printers used in the
international off-premise gaming market in gaming machines such as Amusement
with Prizes, Skills with Prizes and Fixed Odds Betting Terminals at non-casino
gaming and sports betting establishments. Revenue from this market also includes
royalties related to our patented casino and gaming technology.  In addition,
casino and gaming market revenue includes sales of the EPICENTRAL print system,
our software solution (including annual software maintenance), that enables
casino operators to create promotional coupons and marketing messages and to
print them in real time at the slot machine.  Sales of our worldwide casino and
gaming products for the years ended December 31, 2021 and 2020 were as follows:

                               Year Ended                   Year Ended
(In thousands, except
percentages)               December 31, 2021            December 31, 2020          $ Change       % Change
Domestic                $   10,173          66.5 %   $    6,852          62.4 %   $    3,321           48.5 %
International                5,129          33.5 %        4,127          37.6 %        1,002           24.3 %
                        $   15,302         100.0 %   $   10,979         100.0 %   $    4,323           39.4 %



The increase in domestic sales of our casino and gaming products during 2021
compared to 2020 was primarily due to a 57% increase in domestic sales of our
thermal casino printers, as we have experienced some recovery during 2021
compared to 2020, particularly the second quarter of 2020, when the casino and
gaming market was most severely impacted by the COVID-19 pandemic.  This
increase was partially offset by an 81% decrease in domestic EPICENTRAL sales to
an existing EPICENTRAL customer during 2020 to expand its slot machine floor
that did not reoccur in 2021.  Sales of EPICENTRAL are project based, and as a
result, may fluctuate significantly quarter-to-quarter and year-to-year.

International sales of our casino and gaming products increased during 2021
compared to 2020, primarily due to a 40% increase in sales of our thermal casino
printers, as we experienced modest recovery during 2021, most significantly
during the fourth quarter of 2021, after the significant negative impact of the
COVID-19 pandemic on the international casino and gaming industry, which is
recovering at a slower pace than the domestic casino and gaming market.  The
increase from international sales of our thermal casino printers was partially
offset by a 33% decline in sales of our off-premise gaming printers during 2021
compared to 2020.

Lottery:  Revenue from the lottery market includes sales of thermal on-line and
other lottery printers to IGT for various lottery applications.  Sales of our
worldwide lottery printers for the years ended December 31, 2021 and 2020 were
as follows:

                                 Year Ended                       Year Ended
(In thousands, except
percentages)                  December 31, 2021               December 31, 2020           $ Change       % Change
Domestic                $          -              0.0 %   $      817           100.0 %   $     (817 )       (100.0 %)
International                      -              0.0 %            -             0.0 %            -            0.0 %
                        $          -              0.0 %   $      817           100.0 %   $     (817 )       (100.0 %)



On December 31, 2019, we allowed our non-exclusive agreement to provide lottery
terminal printers to IGT to expire as we decided to exit the lottery market and
shift our focus towards our higher-value, technology-enabled food service
technology and casino and gaming products.  As a result, IGT made a final
purchase of our lottery printers during the second quarter of 2020 and we do not
expect any further lottery printer sales in the future.

                                       24
--------------------------------------------------------------------------------

Printrex:  Printrex branded printers are sold into markets that include wide
format, desktop and rack-mounted and vehicle-mounted black/white thermal
printers used by customers to log and plot oil field, seismic and down hole well
drilling data in the oil and gas exploration industry.  Sales of our worldwide
Printrex printers for the years ended December 31, 2021 and 2020 were as
follows:

                                Year Ended                     Year Ended
(In thousands, except
percentages)                December 31, 2021              December 31, 2020           $ Change       % Change
Domestic                $      171            27.1 %   $       83            27.7 %   $       88          106.0 %
International                  460            72.9 %          217            72.3 %          243          112.0 %
                        $      631           100.0 %   $      300           100.0 %   $      331          110.3 %



The increase in sales of Printrex printers during 2021 compared to 2020 resulted
from increased domestic and international sales in the oil and gas market, which
was negatively impacted during 2020 by the decline in worldwide oil prices
attributable to the COVID-19 pandemic.  Additionally, we decided to exit the
Printrex market as of December 31, 2021 in order to shift focus towards our
higher-value, technology-enabled food service technology and casino and gaming
products.  As a result, we had increased sales in 2021 due to fulfilling last
buy orders from legacy customers during the fourth quarter of 2021.  We do not
expect any further Printrex sales beyond 2021.

TSG: Revenue generated by TSG includes sales of consumable products (POS receipt
paper, inkjet cartridges, ribbons and other printing supplies for legacy
products), replacement parts and accessories, maintenance and repair services,
refurbished printers, and shipping and handling charges.  Sales in our worldwide
TSG market for the years ended December 31, 2021 and 2020 were as follows:

                               Year Ended                   Year Ended
(In thousands, except
percentages)               December 31, 2021            December 31, 2020          $ Change       % Change
Domestic                $    5,501          91.6 %   $    6,262          89.5 %   $     (761 )        (12.2 %)
International                  502           8.4 %          733          10.5 %         (231 )        (31.5 %)
                        $    6,003         100.0 %   $    6,995         100.0 %   $     (992 )        (14.2 %)



The decrease in domestic revenue from TSG during 2021 as compared to 2020 was
due primarily to lower service revenue, lower sales of replacement parts, and
consumable products.  Service revenue declined 39%, primarily related to
declining revenue from a service contract with a legacy banking customer that is
expected to expire during 2022.  Replacement part sales decreased 4% primarily
from lower lottery printer spare part sales to IGT, which can vary significantly
from quarter-to-quarter.  Consumable sales declined 25%, due primarily to lower
sales of HP inkjet cartridges used in our banking printers, as we exited the
banking market at the end of 2018.  We expect TSG sales to continue to decrease
in 2022 compared to 2021 due to lower expected sales of legacy lottery printer
spare parts to IGT and lower service sales related to the banking service
contract noted above.

Internationally, TSG revenue decreased during 2021 compared to 2020, primarily
due to 58% lower service revenue, a 64% decrease in international consumable
sales and a 15% decrease in sales of replacement parts and accessories to
international casino and gaming customers due to the negative impact from the
COVID-19 pandemic.

Gross profit. Information on gross profit for the financial years ended December 31, 2021
and 2020 is summarized below (in thousands, except percentages):

  Year Ended December 31,         Percent           Percent of               Percent of
    2021             2020         Change        Total Sales - 2021       Total Sales - 2020
$     15,249       $  12,929          17.9 %                   38.7 %                   42.3 %



Gross profit is measured as revenue less cost of sales, which includes primarily
the cost of all raw materials and component parts, direct labor, manufacturing
overhead expenses, cost of finished products purchased directly from our
contract manufacturers, expenses associated with installations and support of
our EPICENTRAL print system and BOHA! ecosystem and royalty payments to
third-parties, including to the third-party licensor of our food service
technology software products.  Gross profit increased $2.3 million, or 18%, in
2021 compared to 2020, primarily due to the 29% sales increase, which was
largely offset by a decrease in gross margin of 360 basis points during 2021
compared to 2020.  Gross margin decreased to 38.7% in 2021 compared to 42.3% in
2020 due largely to lower margin on our BOHA! hardware sales during 2021
compared to 2020, as we have reduced prices to accelerate the growth of our
BOHA! installed base, as well as higher material and shipping costs resulting
from worldwide supply disruptions caused by the COVID-19 pandemic.

                                       25
--------------------------------------------------------------------------------

Operating Expenses - Engineering, Design and Product Development.  Engineering,
design and product development information for the years ended December 31, 2021
and 2020 is summarized below (in thousands, except percentages):

    Year Ended December 31,          Percent           Percent of          
    Percent of
    2021               2020          Change        Total Sales - 2021       Total Sales - 2020
$      7,475       $      5,703          31.1 %                   19.0 %                   18.6 %



Engineering, design and product development expenses primarily include salary
and payroll-related expenses for our hardware and software engineering staff,
depreciation and design expenses (including prototype printer expenses, outside
design, development and testing services, supplies and contract software
development expenses including those to the third-party licensor of our food
service technology software products).  Engineering, design and product
development expenses increased $1.8 million, or 31%, in 2021 compared to 2020 as
we gradually returned to more normalized pre-COVID-19 spending levels and
continued development for our food service technology products.  We expect
engineering, design and product development expenses to continue to increase in
2022 compared to 2021 due to planned investments in our food service technology
products.

Operating expenses – Sales and marketing. Sales and Marketing Information for Years Ended December 31, 2021 and 2020 is summarized below (in thousands, except percentages):

    Year Ended December 31,          Percent           Percent of          

Percentage of

    2021               2020          Change        Total Sales - 2021      
Total Sales - 2020
$      7,658       $      6,144          24.6 %                   19.4 %                   20.1 %



Selling and marketing expenses primarily include salaries and payroll-related
expenses for our sales, marketing and customer success staff, sales commissions,
travel expenses, expenses associated with the lease of sales offices,
advertising, trade show expenses, public relations, e-commerce and other
promotional marketing expenses.  Selling and marketing expenses increased $1.5
million, or 25%, during 2021 compared to 2020 primarily due to higher trade show
expense, expanded marketing expense and new sales and marketing staff as we
returned to more normalized pre-COVID-19 levels of sales and marketing expense
during 2021 compared to lower costs during 2020 due to cost saving measures
implemented during the second and third quarters of 2020.  We expect selling and
marketing expenses to increase in 2022, as we plan to make substantial strategic
investments in our food service technology sales and marketing groups.

Operating Expenses - General and Administrative.  General and administrative
information for the years ended December 31, 2021 and 2020 is summarized below
(in thousands, except percentages):

    Year Ended December 31,          Percent           Percent of          
    Percent of
    2021               2020          Change        Total Sales - 2021       Total Sales - 2020
$      9,626       $      9,255           4.0 %                   24.4 %                   30.3 %



General and administrative expenses primarily include salaries, incentive
compensation, and other payroll-related expenses for our executive, accounting,
human resources, business development and information technology staff, expenses
for our corporate headquarters, professional and legal expenses, information
technology expenses, and other expenses related to being a publicly traded
company.  General and administrative expenses increased $0.4 million, or 4%,
during 2021 compared to 2020 due to higher recruiting fees and employee
compensation, as well as higher consulting fees related to a planned
implementation of a new ERP system expected to be completed in early 2022.
These increases were partially offset by lower legal and professional fees and
lower severance expense during 2021 compared to 2020.

Operating loss. Information on operating losses for the financial years ended December 31, 2021 and 2020 is summarized below (in thousands, except percentages):

  Year Ended December 31,         Percent           Percent of              

Percentage of

    2021             2020         Change        Total Sales - 2021        Total Sales - 2020
$     (9,510 )     $  (8,173 )        16.4 %                  (24.1 %)                  (26.7 %)



Our operating loss increased $1.3 million, or 16%, during 2021 compared to 2020
on 29% higher sales due to a decrease in our gross margin of 360 basis points
and increased operating expenses of $3.7 million during 2021 compared to 2020.

Interest, net.  We recorded net interest expense of $96 thousand in 2021
compared to $52 thousand in 2020.  The increase in net interest expense was
primarily due to lower interest income earned from the note receivable to a
third-party software developer that was collected in March 2021 and the full
year impact of unused borrowing fees incurred from the Siena Credit Facility
that was entered into on March 13, 2020.

Other, net.  We recorded other expense of $283 thousand in 2021 compared to
other income of $56 thousand in 2020 primarily due to foreign exchange losses
recorded by our UK subsidiary during 2021 compared to foreign exchange gains
recorded in 2020.  Going forward, we may continue to experience more foreign
exchange gains or losses depending on the level of sales to European customers
through our UK subsidiary and the fluctuation in exchange rates of the Euro and
Pound Sterling against the U.S. Dollar, which may be impacted by volatility in
global economic conditions due to the COVID-19 pandemic and political
instability such as the Russia-Ukraine conflict.

Gain from Employee Retention Credit. We recorded a $1.5 million gain during 2021
resulting from the recognition of the employee retention credit pursuant to the
CARES Act upon meeting the conditions required to claim the credit.

                                       26
--------------------------------------------------------------------------------

Gain on cancellation of long-term debt. We recorded a $2.2 million gain in 2021 resulting from the waiver of the PPP loan in July 2021.

Income Taxes.  We recorded an income tax benefit during 2021 of $2.1 million at
an effective tax rate of 33.3%, compared to an income tax benefit during 2020 of
$2.5 million at an effective tax rate of 31.1%.  The tax benefit recorded for
2021 included the recognition of the gain on the forgiveness of the PPP Loan
which is not taxable.  The effective tax rate for 2020 included the impact of
the net operating loss ("NOL") we incurred during 2020 and was carried back to
prior years.  The CARES Act enacted on March 27, 2020 permitted NOLs incurred in
2018, 2019 and 2020 to be carried back to each of the five preceding taxable
years to generate a refund of previously paid income taxes.  We generated an NOL
in 2020, which we carried back to tax years that had a federal statutory tax
rate of 34% compared to 21% in 2020.

Net Loss.  We reported a net loss for the year ended December 31, 2021 of $4.1
million, or $0.45 per diluted share, compared to a net loss of $5.6 million, or
$0.72 per diluted share, in 2020.

Liquidity and Capital Resources
We assess our liquidity in terms of our ability to generate cash to fund our
operating, investing and financing activities.  Significant factors affecting
the management of liquidity are cash flows from operating activities, capital
expenditures, access to bank lines of credit and our ability to attract
long-term capital with satisfactory terms.

Internal cash generation together with cash and cash equivalents currently available, available borrowing facilities and the ability to access lines of credit, if required, should be sufficient to fund operations, capital expenditures and any increase in working capital that would be required to cope with a higher level of activity.

Cash Flow
During 2021, our cash balance increased $9.1 million, or 88%, from December 31,
2020 due primarily to financing activities providing $11.5 million of cash
primarily from the completion of an underwritten public offering.  We had $19.5
million in cash and cash equivalents as of December 31, 2021, of which $1.8
million was held by our UK subsidiary.

Operating activities: The following significant factors primarily affected our
cash used in operating activities of $2.5 million in 2021 as compared to  cash
used in operating activities of $3.5 million in 2020. During 2021:

? We recorded a net loss of $4.1 million.

? We recorded depreciation and amortization of $1.0 million and based on sharing

compensation charge of $1.2 million.

? We recorded a gain of $2.2 million the forgiveness of the PPP loan.

? Accounts receivable increased $4.2 millionor 125%, mainly due to the increase

sales volume during the fourth quarter of 2021.

? We recorded a debt of $1.5 million for employee retention credit that

should be collected in 2022.

? Inventories have fallen $3.6 millionor 32%, mainly due to the use of

inventory available to achieve sales and significantly reduced inventory

purchases resulting from supply chain disruptions caused by COVID-19

pandemic.

? Prepaid income taxes decreased $2.2 million due to the collection of income tax

reimbursement in 2021 related to the reported net operating loss for 2020 which was

carried over to previous years, as permitted by the CARES Act.

? Other current and long-term assets decreased $0.3 millioni.e. 23%, mainly

due to the reduction of a contractual asset linked to a BOHA! Sales

contract completed in 2020.

? Accounts payable increased $2.5 millionor 150%, due to inventory purchases

made towards the end of the fourth quarter of 2021 to support 2022 expected

Sales.

? Accrued expenses and other liabilities increased $0.6 millionor 7%, due

mainly to the increase in deferred revenue.

Current 2020:

? We recorded a net loss of $5.6 million.

? We recorded depreciation and amortization of $1.3 million and based on sharing

compensation charge of $0.9 million.

? Accounts receivable decreased $3 millionor 47%, mainly due to lower sales

volume in the fourth quarter of 2020 compared to the fourth quarter of 2019

due to the pandemic.

? Inventories have fallen $0.9 millioni.e. 7%, mainly due to the use of

inventory available to achieve sales in response to the pandemic.

? Prepaid income taxes have increased $2.2 million due to an income tax refund,

received later in 2021, related to the net operating loss recognized

2020 which was rolled over to previous years as permitted by the CARES Act.

? Other current and long-term assets increased $0.2 millioni.e. 19%, due

primarily to the recording of a contract asset related to a BOHA! long-term! Sales

contract which was partially offset by the recognition of a royalty expense which

was prepaid in 2019 to a technology partner for foodservice technology.

? Accounts payable decreased $1.3 millionor 43%, due to inventory purchases

made towards the end of the fourth quarter of 2019 which were then paid

in the first quarter of 2020 and a drop in the level of inventory purchases during

2020 due to the pandemic.

? Accrued expenses and other liabilities increased $0.2 millionor 3%, due

primarily to an increase in accrued inventive compensation.

                                       27
--------------------------------------------------------------------------------

Investing activities:  Our capital expenditures were $1.4 million and $0.7
million in 2021 and 2020, respectively.  Expenditures in 2021 were primarily
related to the implementation of a new ERP system expected to be completed in
early 2022, new product tooling and computer and networking equipment.
Expenditures in 2020 were primarily for new product tooling equipment, leasehold
improvements at our Las Vegas facility and computer and networking equipment.
Investing activities also provided $1.6 million in 2021 upon the collection of
the remaining $1.6 million note receivable balance during the first quarter of
2021 from an unaffiliated third-party software developer from whom we license
our food service technology software, compared to $0.6 million of cash used in
investing activities during 2020, for the issuance of a loan to the same
unaffiliated third-party.

Financing activities:  Financing activities provided $11.5 million of cash
during 2021 primarily from the completion of an underwritten public offering
which raised net proceeds of $11.2 million, after deducting underwriting
discounts, commissions and offering expenses and, to a lesser extent, proceeds
of $0.4 million from stock option exercises.  These increases were partially
offset by $0.1 million for the payment of withholding taxes on stock issued from
our stock compensation plans and $31 thousand on the final payment of financing
costs associated with our Siena Credit Facility.  During 2020, financing
activities provided $11.0 million of cash primarily from the completion of an
underwritten public offering which raised net proceeds of $8.7 million, after
deducting underwriting discounts, commissions and offering expenses, and $2.2
million in funds received from the PPP Loan and, to a lesser extent, proceeds of
$0.4 million from stock option exercises.  These increases were partially offset
by the payment of $0.2 million in financing costs associated with signing our
Siena Credit Facility.

Resource Sufficiency
Given the unprecedented uncertainty related to the impact of the COVID-19
pandemic on the food service and casino industries, the Company is closely
monitoring its cash generation, usage and preservation including the management
of working capital to generate cash.

We believe that our cash and cash equivalents on hand, our expected cash flows
generated from operating activities, the proceeds raised through the
underwritten public offering during August 2021, and borrowings available under
our Siena Credit Facility will provide sufficient resources to meet our working
capital needs, finance our capital expenditures and meet our liquidity
requirements through at least the next twelve months.  Notwithstanding this
belief, the duration and extent of the pandemic remain uncertain and its
ultimate impact is unknown.  Further, availability under the Siena Credit
Facility depends in part on inventory levels, which have been impacted and are
expected to continue to be impacted by supply chain disruptions due to the
COVID-19 pandemic.  As a result, we continue to evaluate several different
strategies to enhance our liquidity position as a result of the significant
financial and operational impacts due to the COVID-19 pandemic.  These
strategies may include, but are not limited to, seeking to raise additional
capital through an equity or debt financing.

Credit Facility and Borrowings
On March 13, 2020, we entered into the Siena Credit Facility with Siena Lending
Group LLC and terminated our credit facility with TD Bank N.A..  The Siena
Credit Facility provides for a revolving credit line of up to $10 million
expiring on March 13, 2023.  Borrowings under the Siena Credit Facility bear a
floating rate of interest equal to the greatest of (i) the prime rate plus
1.75%, (ii) the federal funds rate plus 2.25%, and (iii) 6.50%.  The total
deferred financing costs related to expenses incurred to complete the Siena
Credit Facility were $245 thousand.  We also pay a fee of 0.50% on unused
borrowings under the Siena Credit Facility.  Borrowings under the Siena Credit
Facility are secured by a lien on substantially all the assets of the Company.
Borrowings under the Siena Credit Facility are subject to a borrowing base based
on (i) 85% of eligible accounts receivable plus the lesser of (a) $5 million and
(b) 50% of eligible raw material and 60% of finished goods inventory.

The Siena Credit Facility imposes a financial covenant on the Company and
restricts, among other things, our ability to incur additional indebtedness and
the creation of other liens.  The three month period from April 1, 2020 to June
30, 2020 was the first period we were subject to the financial covenant, which
required the Company to maintain a minimum EBITDA and continued through the
12-month period from April 1, 2020 to March 31, 2021.  On July 21, 2021, the
Company entered into an amendment (the "Credit Facility Amendment") to the Siena
Credit Facility.  The Credit Facility Amendment changed the financial covenant
under the Siena Credit Facility from a minimum EBITDA covenant to an excess
availability covenant requiring that the Company maintain excess availability of
at least $750 thousand under the Siena Credit Facility, tested as of the end of
each calendar month, beginning with the calendar month ending July 31,
2021. From July 31, 2021 to December 31, 2021, we have been in compliance with
our excess availability covenant.  As of December 31, 2021, we had no
outstanding borrowings under the Siena Credit Facility and $5.1 million of
available borrowing capacity under the Siena Credit Facility.

On May 1, 2020 (the "Loan Date"), the Company was granted the PPP Loan with
Berkshire Bank in the aggregate amount of $2.2 million, pursuant to the PPP
which is administered by the SBA and was established under Division A, Title I
of the CARES Act, enacted March 27, 2020.  Under the terms of the PPP, the PPP
Loan would be forgiven to the extent that funds from the PPP Loan were used for
payroll costs and costs to continue group health care benefits, as well as for
interest on mortgage obligations incurred before February 15, 2020, rent
payments under lease agreements in effect before February 15, 2020, utilities
for which service began before February 15, 2020 and interest on debt
obligations incurred before February 15, 2020, subject to conditions and
limitations provided in the CARES Act.  At least 60% (under the PPP terms, as
amended) of the proceeds of the PPP Loan needed to have been used for eligible
payroll costs for the PPP Loan to be forgiven.

                                       28
--------------------------------------------------------------------------------

The PPP Loan, which was evidenced by a Note dated the Loan Date issued by the
Company in favor of Berkshire Bank as a lender, was scheduled to mature on May
1, 2022 and had a fixed interest rate of 1.0% per annum, accruing from the Loan
Date and payable monthly. The Company submitted its PPP Loan forgiveness
application in May 2021 to the SBA through Berkshire Bank and submitted the
related loan necessity questionnaire in June 2021.  On July 8, 2021, the Company
received notifications from Berkshire Bank and the SBA that its PPP Loan
(including all interest accrued thereon) of $2.2. million had been fully
forgiven by the SBA and that the forgiveness payment date was July 1, 2021. 

No

payments were due on the PPP Loan for six months from the date of first
disbursement, and because a loan forgiveness application was submitted to the
SBA within 10 months after the end of the covered period, no payments were due
until the date on which the SBA remitted the loan forgiveness amount to the PPP
Lender, and interest that accrued during the deferment period was included in
the forgiveness amount.  The forgiveness of the PPP Loan was reported as "Gain
on forgiveness of long-term debt" in the Consolidated Statement of Operations
during the year ending December 31, 2021.

Stock Repurchase Program
During 2021 and 2020 we did not repurchase any shares of our common stock.

Shareholders' Equity
Shareholders' equity increased $8.8 million, or 29%, to $39.0 million at
December 31, 2021 from $30.2 million at December 31, 2020.  The increase was
primarily due to the completion of an underwritten public offering during 2021
which raised net proceeds of $11.2 million, after deducting underwriting
discounts, commissions and offering expenses.  Shareholders' equity also
increased, although to a lesser extent, from share-based compensation expense
related to stock awards of $1.2 million and $0.4 million from the issuance of
97,000 shares of common stock related to employee stock awards, net of
relinquishments.  These increases were partially offset by a net loss of $4.1
million.


                                       29

————————————————– ——————————

© Edgar Online, source Previews

Share.

Comments are closed.